May 20, 2020
Be advised that all my comments are my OPINION and that OPINION is based on my long term in-house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday. BTW, trading commodities is risky and not meant for those that faint at the sight of blood.
The Cattle market has certainly had a wild ride over the past several weeks and it is possible that it has only just begun.
The fundamentals that impacted the markets are pretty clear. Covid-19 causes closure of packing plants, this causes backup of Cattle in the country, this causes cash Cattle to take a dive, packers making a ton of money as retail prices advance, futures take a hit. Present day fundamentals see packing plants re-opening, demand for cattle increases, cash prices paid for live Cattle increases, number of Cattle processed increasing, futures price at a large discount to cash, and futures begin to show life. I could use more words and make this longer, but in my opinion this covers it pretty well. Now for the good part what does the LAWG647 Model tell us? For a little background you may want to read my Cattle comments in the articles of May 4 and 11.
Cutting to the chase according to the Model IF August Cattle close at or above $93.17 the long term trend turns bullish. As of the close Tuesday August Cattle settled at $99.07, $5.90 over what will be needed on Friday to reverse the trend. If you are a bull it is nice to have a $5.90 premium over what is needed three days hence, but it is still possible that the Cattle market could set back below $93.17. The Model also tells us that should Cattle not confirm a trend change on Friday, failing a significant break, odds remain favorable (not a guarantee) for a confirmed trend change in the following weeks.
What to do?
Without the aforementioned break it is my opinion that in the very near future August Cattle will confirm a long term bullish up trend. If one wants to be more aggressive one can consider buying August Cattle around $97.00 and front running the actual confirmation of the trend change. If one is more conservative one can wait until a Friday close confirms a trend change to bullish.
My name is Lee Gaus and if you would like to see more of our thoughts go to our website ifgfutures.com. There you will also find articles written by my partners Tom Fritz, Steve Erdman. If you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me atl[email protected] If you have a commodity you would like me examine feel free to drop me a quick e-mail at[email protected], I will do my best to accommodate.
There is significant risk involved in trading futures and/or options on futures.